It is perfectly legitimate for an investor to seek to protect itself from the general risk of future disputes with a state in which it invests, and to do so by structuring the investment in a way that the investor considers beneficial. For example, an investor may transfer assets from one entity to another, or establish a new entity in a jurisdiction that is considered protective of the investor’s interests. The benefits of corporate restructuring may include the availability of substantive protections and guarantees under an investment treaty, and the possibility to arbitrate an investment dispute with the state where the investment is made before the International Centre for Settlement of Investment Disputes (ICSID).
Recently, in Levy and Gremcitel v. Republic of Peru, an international arbitration tribunal recognized that “an organization or reorganization of a corporate structure designed to obtain investment treaty benefits is not illegitimate per se, including where this is done with a view to shielding the investment from possible future disputes with the host state.”1 However, corporate reorganizations that change the nationality of an investor to manufacture ICSID jurisdiction can be problematic. Whereas a local investor cannot invoke investment treaty protections under bilateral and multilateral investment treaties, a foreign investor may be able to do so. Therefore, when a corporate reorganization transforms a local company into a foreign company to try to enable an investor to invoke investment treaty protections and to initiate international arbitration against the host state, the respondent state is likely to call foul and raise jurisdictional objections.
